Pressure mounts on Brown over tax plans

As PM tries to shift focus on to £22bn Tory 'black hole', businesses plead with him not to raise national insurance

(GETTY IMAGES)

Labour's claim to have discovered a £22bn "black hole" in the Conservative Party's spending plans was overshadowed yesterday by a growing revolt by businessmen against the Government's decision to raise national insurance contributions (NICs).

Seven business groups yesterday rallied behind 23 company bosses who warned that the 1 per cent rise in NICs in a year's time would risk damaging the economy. The rebellion was a boost to David Cameron and helped the Tories divert attention from a 180-page Labour analysis of the Opposition's programme, which concluded that it had a £22bn "credibility gap".

Lord Mandelson, the Business Secretary, claimed the Tories had been "peddling a deception on businesses" – provoking an angry reaction from some bosses. Ian Cheshire, chief executive of Kingfisher, said it was "patronising to suggest that we've been deceived" and that the rise in national insurance amounted to a "tax on jobs".

The 23 businessmen who launched the attack on Labour's decision, including the bosses of Marks & Spencer, Sainsbury's and easyGroup, were backed by David Frost, director general of the British Chambers of Commerce; Stephen Robertson, director general of the British Retail Consortium; John Cridland, deputy director general of the Confederation of British Industry; Phil Orford, chief executive of the Forum of Private Business; John Walker, national chairman of the Federation of Small Businesses; Miles Templeman, director general of the Institute of Directors; and Kevin Green, chief executive of the Recruitment and Employment Confederation.

The seven groups praised the Tories' decision to reverse the rise for employers and for workers earning under £35,000. They said: "We applaud the decision by a number of Britain's most senior business leaders to take a public stand against the planned rise in national insurance – which is a clear and unequivocal tax on jobs. Given that all political parties are counting on the private sector to drive future economic growth, it is only right to look for ways to improve the business environment through cost savings across the public sector."

The intervention by business was untimely for Labour as it undermined the party's attack on the Tories' decision to pay for reversing the NICs rise through £12bn of efficiency savings.

Labour's dossier claimed that the Tories were committed to £12.8bn of tax cuts by the end of the next parliament, to overturn £6.9bn of tax rises, and to extra spending of £9bn. Against that, they had identified specific spending cuts of £6.4bn, leaving them with a £22.2bn "black hole" which they would need to fill from tax rises or more cuts.

Last night, Lord Mandelson claimed the Conservatives would have to raise VAT to balance the books. He said. "We have to remember 1979 and 1992, when VAT hikes followed Conservative election wins." But Alistair Darling, the Chancellor, stopped short of giving a cast-iron pledge that Labour would not raise VAT in the next parliament.

Mr Cameron claimed Labour's plans were "in meltdown" and its attack on business leaders would backfire. He insisted: "Our plans involve cutting wasteful spending and stopping the national insurance rise. Our plans don't involve an increase in VAT. The credibility gap is with Labour, because you've now got Britain's top businesses saying the Conservatives have got it right about cutting waste and stopping the national insurance rise and saying that Labour has got it wrong."

Mr Cameron admitted he had not fully explained how the Tories would "fill the hole" in the nation's finances but claimed the hole in Labour's plans was even bigger because the Government had said less about what it would cut. The Tories claimed Labour's dossier wrongly counted £22bn of commitments they had not made, arguing there was therefore no "black hole" in their programme.

George Osborne, the shadow Chancellor, hailed "a significant day in the debate about the British economy, when the business community has come together to reject Labour's tax on jobs". He said: "Gordon Brown now finds himself at war with British business."

Nick Clegg, the Liberal Democrat leader, said: "The Conservatives promise a deficit reduction without telling us how they are going to pay for it. They promise increases in public services without telling us how they are going to pay for it. Now they promise stopping the rise in national insurance without spelling out how they are going to pay for it. This is not a party with is interested in financial responsibility; this is a party of funny money and sums which don't add up."

What is the truth about the parties' tax promises?

Q. What are the political parties saying about tax and spending?

A. Labour claims to have identified a £22bn "black hole" after analysing the latest Conservative tax and spending commitments – less than the £34bn figure Labour claimed in January but still huge on the eve of a general election.

Q. What do the Tories say?

A. Not surprisingly, they insist that their figures add up. They claim that Labour has wrongly counted Tory aspirations as firm pledges for the next parliament; among these aspirations is a reversal of Gordon Brown's £5bn tax raid on pension funds.

Q. Why have business leaders entered the political debate?

A. Twenty-three company bosses and seven business organisations have welcomed the Tories' promise on Monday to block the planned 1 per cent rise in national insurance contributions (NICS) for employers and workers on low and middle incomes. The increase was announced in last month's budget and is due to take effect in April next year. They say that such a "tax on jobs" would come "at exactly the wrong time in the economic cycle".

Q. How can the Tories afford to block a tax increase that would raise £7bn?

A. The rise would go ahead for people earning more than £45,400, so the partial repeal would cost £5.6bn. The Tories say they would be able to recoup this sum from £12bn of government efficiency savings. Two former Whitehall advisers have told the Tories there is scope for this.

Q. But don't the Tories want to cut the £167bn public deficit further and faster than Labour?

A. Yes. But they claim the efficiency savings – which so far remain unspecified – will allow them to "make a start" on reducing the deficit in the 2010-11 financial year, and that lifting the "tax on jobs" will boost economic growth. Labour claims the Tories have been panicked into making their move on NICs by their slip in the opinion polls.

Q. What are the Liberal Democrats saying?

A. They claim they have been the most open with the voters by identifying £15bn of spending cuts. Their tax-shake-up would raise the income-tax threshold to £10,000, taking 3.6 million people out of the tax net. Vince Cable, the Liberal Democrat Treasury spokesman, said Labour and the Tories were "as bad as each other". He added: "Whether it's for tax cuts or filling in the deficit hole, both parties seem to be in a competition to see who can come up with the least credible cuts."